Posts tagged with: solar industry

You ever play that game Whac-a-Mole? That’s kind of how I’ve felt over the last few months when separating fact from fiction about the solar energy industry in the U.S. We keep knocking down myths about solar, but they just keep popping up somewhere else.

But an op-ed by T.J. Rodgers in the Wall Street Journal last week really took that dynamic to a whole new level.

First and foremost, what really struck me most was who wrote the article. After all, Mr. Rodgers himself found a great investment opportunity in the solar industry because the very incentives he criticizes helped open market opportunities for his company right here in the United States.

I’m not knocking him for that. The U.S. solar energy industry is now one of the fastest growing industries in the United States because of innovation by companies like those Rodgers found to be smart investments.

The solar investment tax credit that Rodgers references in his piece has done exactly what it was meant to do. It has opened new markets in states across the country, creating jobs and making solar more affordable for average consumers each and every year. In fact, the price of solar panels has fallen 40 percent since the beginning of the year.

Today, the solar energy industry employs more than 100,000 Americans at 5,000 businesses located in every state. Many of these are small businesses that are finding new opportunity for growth in the solar industry. It is leading to rapid innovation — across the spectrum from factory improvements to new financing and sales mechanisms that are allowing more and more Americans to go solar.

In fact, the third-party ownership model that Rodgers criticizes has made solar more accessible to homeowners and small businesses than ever before by eliminating what has always been the biggest barrier to adoption: the upfront cost. Solar energy is not a luxury item for the wealthy. Two-thirds of California home solar installations since 2009 have been in zip codes with median annual household incomes of less than $85,000 and not in the wealthiest areas of the state.

Rodgers is correct that buying a system outright is ultimately the most cost-effective option. But because you are essentially prepaying your electricity bills for the next 30 years, for most homeowners and small businesses, this is simply not an affordable option. This is no different from purchasing a new car: leases and loans enable more people to enjoy the benefits of owning a new vehicle. So flexibility in financing for homeowners has been a game changer that is saving homeowners money, allowing businesses to grow, and yes, being increasingly viewed as a profitable investment by Wall Street.

The notion that we are creating “employee-less corporations” is laughable. As I mentioned earlier, the solar industry in the U.S. employs 100,000 Americans, more than twice as many as in 2009. With the growth in popularity of these new financing mechanisms, small businesses across the country are finding that they need to hire skilled workers to meet increased demand. Roofers, electricians, plumbers and contractors — skilled labor professions that have been hit hard by rampant unemployment in recent years — are finding new opportunities to put their expertise to work in the solar industry.

It is true that the global solar manufacturing industry is experiencing a transition, with a global oversupply of PV panels and questions looming over Chinese trade practices which will be determined over the coming months. But Rodgers ignores the intricacies of the solar manufacturing supply-chain and oversimplifies a complex challenge for manufacturers — both in the U.S. and abroad.

Yes, solar energy products enter the U.S. from China. They also enter from Europe, South Korea, Japan, Mexico, Taiwan and dozens of other countries, just like thousands of other goods enjoyed by Americans every day. But this is unusual: the U.S. exports solar energy products as well. In fact, the U.S. was a $2 billion net exporter of solar energy products in 2010, even a net exporter to China. Solar energy projects also create significant value beyond the price of physical components. Factors such as site preparation, installation labor, permitting, financing and other soft costs account for a significant percentage of a U.S. solar energy project. These are factors that cannot be outsourced. In 2010, 75 percent of the direct value created by domestic solar energy projects accrued to the U.S.

Rodgers also spreads the myth that incentives for energy technologies are a new phenomenon in the U.S. The truth is, when it comes to our energy portfolio, free markets have never existed. The government has chosen for over a century to incentivize energy production because it is the heart of our economy. From 19th-century coal through 20th-century oil, natural gas and nuclear, all energy industries in the U.S. have received substantial, permanent subsidies from the federal government. It was right to invest in those industries to power our economy then; it is right to invest in solar to power our economy now.

With a combination of technological and financial innovation, market access, and effective federal incentives, the U.S. solar industry is driving down the cost of solar and rapidly scaling an industry key to America’s energy future. The ultimate beneficiary is American consumers. Homeowners, small businesses, retailers, churches, community centers, cities — all of these can benefit from cheaper, cleaner solar energy.

Rodgers is correct in one respect. Since its beginning in 2006, solar project developers found it difficult to actually use the investment tax credit. This is because most developers were either small businesses or startups that did not have the “tax appetite” to use the 30 percent credit. Put another way, they did not yet have the taxable profits necessary to use the full 30 percent credit on their returns.

This is where tax equity players came in as partners with project developers. These were large firms — like investment banks — that did have taxable income. Where Rodgers sees a scam, most people saw a win-win-win. Tax equity players found a solid investment, solar energy businesses were able to continue building projects and creating jobs, and consumers saw solar energy as an increasingly affordable energy choice.

But the financial crisis in 2008 decimated the availability of tax equity in the marketplace. Banks that were hanging by a thread no longer had the tax appetite necessary to continue investing in projects and developers suddenly faced an overwhelming shortage of available capital. Tax revenues across all sectors sank, shrinking the national pool of tax equity almost overnight. Meanwhile, thousands of parts of our economy who rely on tax policy still sought to use the shrinking pool, meaning demand far exceeded supply and little was left for solar. What was left was expensive to get.

Recognizing that the tax credit was not working as they intended, Congress passed the Section 1603 Treasury program as a temporary fix while tax equity markets recovered. The 1603 program allows flexibility in how project developers monetize the tax credit. Instead of writing off 30 percent of the cost on their tax return in April, which was impossible for businesses with small profit margins, developers could now opt for a direct upfront payment and solving the tax issue. The amount and cost to the Treasury was the same, but that critical change in timing made all the difference for energy project developers across the country.

This program has been a resounding success, not only for solar energy developers, but for developers in over a dozen energy technologies. The program has leveraged $23 billion in private sector investment for more than 22,000 energy projects located in all 50 states. And it’s not a new credit: the 1603 Treasury Program is merely a tweak to the tax code to allow what Congress intended to create — an incentive for energy technologies to help power our economy and increase national security by diversifying our energy resource mix.

Make no mistake, if the program expires, we will start to see projects scrapped and jobs lost almost instantly in 2012.

You can help us make sure that the solar industry continues to create jobs and investment across the U.S. Call your Senators or send them a message and tell them not to let this job-creating program expire. There are only a few days left in the year and this is an all hands on deck effort for the solar energy industry and our allies in other energy sectors. If you want the U.S. to meet its potential as a powerhouse in renewable energy, this is one simple way you can help. Or we can let Congress do to renewables what this guy is doing to electronic moles.

A recent survey by the Climate Institute found 81 per cent of respondents placed solar power within their top three preferred energy options and two-thirds placed coal in their least preferred three.

Climate of the Nation 2012 measures Australian attitudes to climate change, related policies and solutions in mid-2012.

A couple of things are clear from the survey according to the Climate Institute: “Australians are sick of the politics and scared about rising costs of living”.

Clear also is Australians’ passion for solar energy. While solar was among the top three energy options for 81 per cent of respondents, wind was the second most preferred option with 59 per cent and hydro, 44 per cent.

Solar power was the most popular energy choice in all states, with the highest number of most preferred votes in Western Australia (88 per cent), followed by South Australia, Queensland and Victoria (each at 82 per cent), and New South Wales (75 per cent).

While 28 per cent placed gas within the top three most preferred sources, for 31 per cent it was slung in the three least preferred energy options.

Two-thirds placed coal in their least preferred three, just a whisker more than nuclear at 64 per cent.

76 per cent of respondents stated increasing the amount of renewable energy in Australia’s energy mix was the most effective greenhouse gas emission reduction policy.

“..Australians’ vision for a low-carbon future is one that taps into the nation’s abundant renewable energy resource,” said John Connor, CEO of The Climate Institute.

The Climate Institute has conducted comprehensive quantitative and qualitative research into Australian attitudes to climate change and its solutions since 2007.

The Court of Appeal today (Wednesday 25 January 2012) unanimously rejected Government attempts to overturn last month’s High Court ruling that its plans to rush through sudden cuts to solar tariff payments are illegal.

The Government is now seeking permission to appeal to the Supreme Court. Friends of the Earth says the move will create yet more uncertainty for solar firms and after two courts have ruled their move illegal is urging Ministers to concentrate on safeguarding the industry rather than wasting more time and money on further appeals.

The High Court ruled shortly before Christmas that Government plans to cut payments for any solar scheme completed after 12 December – 11 days before the official consultation closed – were unlawful. The judgement followed legal challenges brought by Friends of the Earth and two solar firms, Solarcentury and HomeSun, last month.

Today’s judgement will prevent Ministers rushing through cuts to feed-in tariff payments in future, restoring some confidence to the UK’s clean energy industry. But Friends of the Earth warns that unless Ministers change other parts of their solar subsidy proposals, up to 29,000 jobs could be lost.

Friends of the Earth is urging Ministers to find more money – paid for from tax payments the industry generates – to safeguard the long-term stability of the solar industry. The environmental campaigning charity is also calling for crucial amendments to proposed Government solar payment changes, including re-examining over-strict energy efficiency rules that will prevent 90 per cent of houses from claiming solar subsidies.

Today’s ruling means that, subject to any further appeal to the Supreme Court, solar tariff payments will remain at 43.3p (p/kWh) until 3 March 2012 when – following Government moves last week – they will fall to 21 pence.

Friends of the Earth’s Executive Director Andy Atkins said:

“This landmark judgement confirms that devastating Government plans to rush through cuts to solar payments are illegal – and will prevent Ministers from causing industry chaos with similar cuts in future.

“The Government must now take steps to safeguard the UK’s solar industry and the 29,000 jobs still facing the chop.

“Ministers must abandon plans to tighten the screw on which homes qualify for solar payments – and use the massive tax revenues generated by solar to protect the industry.

“Helping more people to plug into clean British energy will help protect cash-strapped households from soaring fuel bills.”

We stand presently in a state of transition. At the time of writing this article, the most lucrative residential solar power incentive ever to be offered in the United Kingdom is days from being cut in half. So what does this mean for those still considering purchasing a solar energy system for their home or property? Will the new rates kill off the residential market completely, or is there some tangible evidence of the investment remaining economically worthwhile? Let’s take a look.

The new rates have been announced and the primary one to focus on for all residential sized installations is the now reduced Generation Tariff:

4kW and >4kW Installations: 21 pence per kWh generated

This adds to the other two incentives that come from a) saving energy otherwise bought from the grid and b) exporting surplus when over-producing. The Export Tariff rate remains at the negligibly effective 3 pence per kWh, but exporting simply isn’t going to happen in the vast majority of households and properties. Of more importance is the savings rate will continue to reflect the price you pay per kWh from your energy retailer. This currently stands on average of 13 pence for residential properties.

So all in all, let’s conservatively say we are going to be generating solar kWh’s worth:

(21p Generation + 13p Savings) 24 Pence per kWh

Whilst this is a significant reduction in the previous tariff rates, if a few other factors come into play then solar installations will remain a worthy investment for many thousands of people.

Let’s have a look at some other factors that may determine the feasibility of solar installations for thousands of people across the UK.

Areas of Development and Promise

Reduction in Upfront Capital Outlay

The first and most immediate change that we will see in the residential solar industry is a substantial reduction in upfront cost of purchasing a solar energy system. This will involve not only less profit margins for their own businesses but better rates at which they buy components, in-house adaptations for scaffolding and accounts to avoid external expenditure, streamlining sales and marketing and essentially running as efficiently as possible.

We expect this to account for anywhere between a 15% to 35% drop in prices by the time we arrive at late January 2012. This means the most price competitive are set to get as low as £8,500 or even better. This alone would catalyse returns on investment to reach back to their 8%-12% mark, easily trumping rates achievable with bank savings accounts or ISA’s. Ultimately this in itself is enough to recreate interest from large numbers of home and residential property owners, but let’s consider some other possibilities that may work in tandem.

Community Groups

It is a common retail and purchasing philosophy that buying more of something results in a better price per unit. Solar power installations for residential properties are not alienable from this. Community groups that are geographically localised have a significant advantage in that they can receive discounts by purchasing a solar energy system collectively. So long as a reputable and knowledgeable organisational arm is employed to do this work, comparisons can be made across the local installers and the best possible deal brokered. This lowers the upfront capital costs for all involved on often sliding scales up to 20%. Solar Community Organisers here at Solar Selections are experts at organising and facilitating such an effort. Contact us today for more information.

Remote Power Opportunities

Whilst the majority of the population live in relative proximity to power plants and the main grid, properties that are on islands or over mountains usually pay much higher rates for their energy. In Australia, our parent company Solar Choice invented a unique approach to assisting communities in some of the more isolated regions of the land down under. Because they were paying more for their energy, their systems saved them more and the returns on investment improved. If you’re unsure about how much you’re paying for your energy, have a look at your bills or contact your energy provider.

Finance

A solar power system is a very straightforward, low maintenance and low risk investment once installed, and bank and credit institutions across Europe are warming to this slowly. At this point in the UK there are several commercial opportunities for finance from groups such as Barclays. Over time, residential markets will present another opportunity for banks to lend money and charge interest so the market is expected to open up. More information on this will become available as it comes out.

Conclusion

These suggestions are merely a handful of methods that the residential solar industry will utilise to adapt to the tariff changes. By watching the pricing and ensuring potential customers investigate all of the best prices available, consider organising a community group and explore finance options, residential properties will find solar a worthwhile investment as soon as January 2012. For an up to date account of all the possibilities, contact Solar Selections today and speak to a dedicated member of staff.